Labor Market Dynamics: Supply, Demand, and Equilibrium

Job Offer

Understanding the aggregate job offer involves analyzing different curves that indicate the quantities of labor individuals are willing to exchange for a determined wage. This is closely related to the population. If there are many births, this causes an increase in the job offer. Conversely, if births decline, the population stagnates or falls, leading to a decrease in future labor supply.

• Migration will cause a drop in the labor supply in the country of origin and an increased supply of labor in the destination country.
• Societal values play a significant role in labor. One consequence of the equality of women and their changing roles is the incorporation of female social work outside the home. This causes an increase in labor supply.
• Child labor has the effect of labor market exit for younger individuals.

Labor Demand

Labor demand is the number of workers businesses are willing to recruit at a determined salary level. The marginal product value is the income obtained by acquiring an additional factor of production, holding other factors constant. Productivity is the relationship between the amount of consumption goods produced and the factors used to produce them. In the labor market, productivity refers to the value of production generated by workers relative to the total costs to produce.

Market Equilibrium

Market equilibrium occurs where labor supply and aggregate demand match. If wages exceed market equilibrium, there is an excess supply, causing downward pressure on wages as the unemployed are willing to work for lower wages. If wages are below equilibrium, companies cannot find workers willing to sell their labor at current wages, leading to an upward adjustment to reach equilibrium. Unemployment occurs when labor supply exceeds demand due to market mismatch.

Total Population (Spain)

• Age-dependent population (0 to 16 and 65+)
• Inactive population (do not want to work or seek work)
• Active population (in work or seeking work)
  • Employed (workers)
  • Unemployed (seeking work and not finding)